Investors sitting on large paper losses may not be feeling happy, but crystallising those losses could turn them into a “tax advantage”, says Jennifer Hill in The Sunday Times. If the value of an investment is now “next to nothing”, a loss can be claimed on it, even if you don’t sell. However, if the value recovers in the future, any taxable gain will be computed from the assumed negligible value. Meantime, says George Bull, head of tax at Baker Tilly, you can offset the loss “against other gains”.
Say you bought shares for £20,000 some years ago that are now worth £40,000. The taxable gain is £20,000. With your annual exemption of £9,600 you would pay 18% capital-gains tax on £10,400 (£1,872). However, if you also bought shares for £8,000 in a company that is insolvent, you could make a claim to offset that loss to reduce the tax bill to £432 (18% of £2,400). Alternatively, you could keep the first set of shares and simply realise the capital loss on the second, carrying it forward indefinitely to offset against future gains. Do remember, however, to tell the taxman of any losses within five years.